The unpredictable consumer frustrates forecasting
- Hope King, author of Axios Closer

Illustration: Brendan Lynch/Axios
If you’re wondering when a recession will arrive, pay attention to your own behavior.
The big picture: Forecasting economic trends has been a challenge during the pandemic, largely because consumers have been unpredictable.
- Stimulus injections and a tight labor market created a warped environment that has disconnected sentiment from actual spending.
- Even as the University of Michigan and Conference Board consumer studies show moods staying below pre-pandemic levels, reports from travel, services and consumer goods companies largely reflect a rebound — and in some cases — higher levels of spending than pre-pandemic.
What they're saying: “We were surprised too, that consumer confidence is not highly correlated, at least for the past few years," Jonathan Silver, CEO and founder of consumer purchase data platform Affinity Solutions, said yesterday during a National Retail Federation conference in New York.
- And instead of taking away from spending on goods to spend on services, consumers have spent on both, according to Mark Mathews, VP of research development and industry analysis at the National Retail Federation.
- "While the share [of spend] has shrunk, the actual amount spent on goods has been increasing the entire time ... funded by multi-trillion dollars worth of excess saving, as well as leaning into debt."
Tracing the gap: With about $1.5 trillion of excess savings left for consumers to spend, and a labor market that still favors workers — people in the U.S. have generally felt good enough to keep dining out, vacationing and buying what they want.
- “If you think you're going to have a job, you're going to continue to spend," Sarah Wolfe, a Morgan Stanley economist, added.
Yes, but: There are fresh signs that consumers may be slowing down.
- They're burning through the excess savings quickly and the difference between their disposable income and spending as of November is down to 2.4% — the lowest margin since 2005, Mathews notes.
Be smart: Due to structural inequities in the economy, different segments of the consumer population will continue to be impacted unevenly by monetary policy and the direction of inflation and wages.
- Lower income households, for example, will have a tougher year in 2023 as they lean more on credit and banks tighten lending standards, Wolfe noted.
- That type of credit will be more sensitive to interest rate hikes than mortgage rates that homeowners locked in when rates were rock bottom during the pandemic.
- "Over 90% of household debt is locked in at a fixed rate [because] almost 99% of mortgages are fixed rate mortgages," said Wolfe.
What to watch: “Even if we have a more recessionary environment for lower income households, [higher] income households drive the vast majority of consumer spending," and overall homeowner households "are still very healthy," said Wolfe.
- "People have built up a tremendous amount of equity in their homes," she adds.
- And because the economy has been running on fewer resources over the last few years, layoffs will be concentrated in certain parts of the economy as “companies by and large are going to be more hesitant to lay off the skilled workforce that they found and that's been so hard to retain.”